Ecuador Grapples with Money Laundering, a Growing Threat in Latin America
Money laundering has become a significant concern for Ecuador, a country struggling to combat the second-most prevalent criminal economy in the region. According to a new study by the Ecuadorian Observatory of Organized Crime (OECO), there are three major obstacles that Ecuador faces in tackling money laundering: its role as a transit country for large-scale drug trafficking, the use of the US dollar, and structural issues within the banking system.
Ecuador’s Role as Drug Transit Country
Ecuador’s location between Colombia and Peru makes it an essential route for cocaine produced in these countries to reach international markets. As a result, Ecuador seized the second-highest volume of drugs in Latin America in 2022, with significant capital flows from the illicit trade strengthening local criminal organizations.
- Rise in Violence: Murders jumped 82% in 2022, leading to increased violence and instability.
- Foreign Organized Crime Networks: Many local groups have turned to foreign organizations, including Albanian networks that have been identified as operating in the country.
The Dollarization of Ecuador’s Economy
Ecuador adopted the US dollar in 2000, which has helped combat fiscal indiscipline and reduce poverty levels. However, this measure has also facilitated the laundering of assets from illicit economies.
- Global Dominance of the Dollar: The dollar enables dirty money to be easily moved across borders, with around 88% of global foreign exchange transactions involving the dollar.
- Anchoring Organized Crime Transactions: The dollarized economy plays a crucial role in money laundering, as it facilitates the movement of illicit funds.
Permeable Banking System
Ecuador’s banking system is particularly susceptible to money laundering due to institutional limitations, including a lack of formal mechanisms to investigate money laundering cases and limited human and technological resources.
- Estimates of Laundered Funds: Around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the annual amount between 2007 and 2016.
- Loopholes Exploited by Criminal Groups: The majority of suspicious transaction reports were linked to the financial sector, with a significant proportion taking place in the banking sector.
Addressing the Challenge
To effectively combat money laundering, Ecuador needs to strengthen its institutional capacity, improve coordination between law enforcement agencies, and enhance public awareness about the risks associated with this crime.
- Strengthening Institutional Capacity: Enhance formal mechanisms to investigate money laundering cases and provide adequate resources for law enforcement agencies.
- Improving Coordination: Increase collaboration between regional partners to disrupt the flow of illicit funds and dismantle organized crime networks.
- Raising Public Awareness: Educate citizens about the risks associated with money laundering and promote a culture of transparency.